Friday, January 22, 2010

Financial Planning: Saving for the Future

As a writer, you may be earning more than you ever imagined, or you may be earning nothing. It all depends on where you're at in your career. Writers at all levels can benefit from planning for their future, though. Unpublished, multi-published, doesn't matter. We all plan on retiring at some point, and who doesn't need an emergency fund?

Let's talk retirement first. As a member of the self-employed workforce, you do not have the benefit of a company pension nor are you able to contribute to a company-sponsored 401K plan. This does not mean you can't save for retirement, though. Take advantage of Roth IRA's. Most people can contribute up to $5000. Check out "7 Things to Know About Roth IRA Rules for 2010" at www.goodfinancialcents.com for a terrific look at how IRA's can benefit you.

A few other ways to save for retirement are:
* pay your house off
* save money in cd's
*buy US treasuries
*invest in the stock market
*save in a money market account

If you pay your house off, you no longer have a monthly mortgage. This allows you to need less income. Yes, I know many experts say not to pre-pay your mortgage because of the tax benefits, but paying additional interest to get a percentage of that interest back at tax time doesn't add up. Skip paying the interest altogether by pre-paying your mortgage. Peace of mind is priceless.

Another good idea is to save money in CD's. They're a safe long-term or short-term investment. You can use them to save for retirement, but if you need to withdraw before the term is up, you sacrifice a portion of the interest earned--not your principal. No, you do not get tax advantages from doing this, but CD's are safe and can be as long-term as you want them. Make sure the CD is FDIC insured.

One of the safest investments out there is to buy United States Treasuries. They are federally backed by the US government. Check out Treasury Direct for more information.

Just because you don't have a 401K, does not mean you can't invest in the stock market. It's easier than ever with the advent of Internet trading sites. Do your research, subscribe to a few financial publications, and don't view it as a game. Remember, the stock market offers no guarantees on your money. You can lose your entire investment. Make sure you only put in what you can comfortably lose.

A money market account is a great place to build an emergency fund or to keep liquid assets. It's separate from your checking account, although you can write checks from it, and money market accounts usually offer higher rates than savings accounts. If you open one with an FDIC insured bank, the first $250,000 of your money will be safe. Here's a link to the FDIC fact sheet. Go to bankrate.com to compare rates.

Okay, we looked at a few places to invest money, but will we actually do it? Yes, but it requires a system, an easy system. This might not work for everyone, but if you're struggling to come up with the income taxes you owe or you find the idea of saving for retirement laughable, you should give it a try.

As soon as you sign your first contract, go to your bank and open a new savings account. This account will only serve as a holding tank for your quarterly taxes and investment funds. No other funds should sit in this account. You will probably need to deposit a minimum amount to leave there because this account is not intended to accumulate for long. You will simply deposit a portion of each check into it, and when it is time to pay your taxes or transfer money into a retirement or savings vehicle, you'll withdraw the amount.

Whenever you receive payment: record the date, the amount, who it's from, and what it's for. Every three months, you will need to pay taxes, so when you get a check, transfer the amount you owe for taxes into your new savings account. In a notebook or computer spreadsheet, record how much is in that account and designate what it's for.

For example: You get a check for $3000.00 in January. You receive it from your agency (minus your agent's 15%) for book A. The gross amount was $3450.00. You've determined you'll owe approximately 30% (*this figure is purely hypothetical) of the net to the IRS, which is $1000.00. Before you transfer that money, decide what percentage of your income you will save for your retirement. Let's say you've decided on 5% of gross, which is $172.50. Transfer both the taxes and the retirement, $1000.00 + $172.50 = $1172.50, to your separate account. Write down the following:

Decide how often you will contribute to the retirement venues you've chosen. I don't recommend setting up a monthly automatic payment through your bank account, only because your income will be sporadic. Consider making contributions on a quarterly or bi-annual basis.

Writers can plan for their financial future, but it takes a system. Spend a few hours learning about your investing options. Draw up a plan and set up an easy method of saving so you won't have to worry about not having money for taxes or for retirement.

Jill Kemerer is a multi-published author of inspirational romance novels. Her essentials include coffee, fluffy animals, a stack of books and taking long
nature walks. Jill resides in Ohio with her husband and two almost-grown
children. She loves connecting with readers, so please visit her website, jillkemerer.com, and sign up for her newsletter.

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"Many are the plans in a man's heart, but it is the Lord's purpose that prevails."